Pernod Ricard predicts coronavirus will cause 2% dip in sales

Despite reporting a 4.3% rise in operating profit in the first half of its fiscal year, drinks giant Pernod Ricard has warned that the coronavirus outbreak could cause a 2% fall in its FY2020 sales.

The plans for Pernod Ricard’s US$150 million whisky distillery in China, announced last year.

Despite releasing results that were slightly ahead of Citi analysts’ expectations, Pernod Ricard has expressed caution in its half-year figures.

Operating profit experienced 4.3% organic growth to reach €1.8 billion, while sales totaled €5.5 billion, achieving organic growth of 2.7% and reported growth of 5.6%.

The group is performing particularly well in China, with an 11% growth in sales in the region. However, the French firm scaled back its predictions for the growth of its operating profit from recurring operations in FY2020, from 5-7% to 2-4%. This follows a similar move by Diageo, which likewise now predicts its organic net sales to be at the lower end of the range originally estimated.

Pernod Ricard revealed that all on-trade outlets in China will close this month until the end of June in Hubei province, the centre of the virus outbreak. Elsewhere in the country, it stated that it expects a “gradual recovery” from March, with the restoration of normal operations by June.

Meanwhile, in the off-trade, there has been a “significant impact on both traditional and modern outlets in late January and February”. Pernod Ricard is likewise expecting recovery in March.

In the travel retail sphere across Asia, Pernod Ricard noted that Chinese passenger numbers are predicted to fall by around two-thirds in February and March. It predicts gradual recovery from April, with normal numbers being achieved by June.

Overall it has estimated that the outbreak will cause a 2% dip in FY2020 sales, and a 3% reduction in overall operating profit.

Commenting on the effects of the coronavirus, Alexandre Ricard, chairman and chief executive officer, said: “Looking to H2 FY20, the environment remains particularly uncertain from a geopolitical standpoint, with the additional pressure related to the COVID-19 outbreak. While we cannot currently predict the duration and extent of the impact, we remain confident in our strategy.

“Our first priority is to ensure the safety and wellbeing of our employees and business partners. I would like to praise the exemplary behaviour of our teams during this difficult time. We fully support their efforts, as well as those of the Chinese people and authorities to contain the epidemic.”

Among Pernod Ricard’s top-performing brands were Royal Salute, which experienced 17% organic sales growth, The Glenlivet 15%, Malibu 13% and Beefeater Gin 12%. The group’s entire Scotch portfolio experienced an overall 4% rise in sales.

However, brands including Absolut (-1%), Chivas Regal (-2%), Ricard (-5%) and Champagne Mumm (-3%) all experienced a fall in sales.

Ricard added: “H1 FY20 demonstrated solid growth and resilience of our business model. Our three year-plan transform & accelerate is driving success, as evidenced by the diversification of the sources of growth in terms of geographic footprint and categories, continued strong pricing and ultimately the improvement in operating leverage.”